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Cisco Prices $6.25B Senior Notes, Rated A1 by Moody's
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Shares of Cisco Systems, Inc. (CSCO - Free Report) have been scaling steadily higher over the last 12 months. The company’s stock provided a return of 19.2% as compared to the S&P 500’s 6.7% over the period.
The upside can be primarily attributed to the company’s strong market position, a wide product range, initiatives for growth, new investments and dividend payout. Moreover, a gradual shift towards cloud computing and increasing data flow on computer networks are further helping the stock climb higher. However, on the flip side, Chinese competition remains a matter of concern for the company.
Cisco has recently announced the pricing of senior unsecured notes aggregating $6.25 billion. These bonds have been issued in five tranches of different amounts with varying coupon rates and maturity dates. The offering is expected to close on Sep 20, 2016, subject to customary closing conditions.
Out of these notes, $500 million, carrying an interest at a floating rate equal to three-month LIBOR plus 34 basis points, will mature in 2019. Senior Notes worth $1.5 billion, $2 billion, and $750 million, with annualized interest rate of 1.400%, 1.850% and 2.200%, are due to mature in 2019, 2021 and 2023 respectively.
Additionally, another $1.5 billion worth of senior notes having an annualized interest rate of 2.500% will mature in 2026.
Management intends to use the net proceeds for general corporate purposes. These may include share repurchases, debt repayment, including the repayment of previously issued senior unsecured notes, acquisitions, investments, additions to working capital, capital expenditures, cash dividends or investments in its subsidiaries.
Moody’s Rating
Moody’s Investor Services – the credit rating agency of Moody’s Corporation – assigned an “A1” rating to the Notes. The A1 rating carries a stable outlook.
The rating was based on the Internet protocol (IP) provider’s strength in network equipment domain aided by its broad and innovative product line, expansive operations and distribution, end-to-end networking capabilities and advanced technology development abilities. Despite intensifying competition from several smaller players, these key points helped the company to sustain its market share.
In addition, the company’s strong footing in the networking space, cost efficiency and a sturdy balance sheet influenced the rating. The company has around $66 billion in cash and highly liquid investments.
The company maintains strong liquidity and has moderate financial leverage. This enables the company to return value to shareholders through regular share repurchases and dividend payouts. Moreover, it allows the company to invest aggressively to expand its core business and effectively deal with competitive challenges.
Technically Speaking
As we can see from the Daily chart of Cisco above, price has broken out of a Rising Wedge pattern to the downside, along with a Negative Divergence with the 14-period Money Flow Index, wherein price is making higher highs but the oscillator is making lower highs indicating that volume is drying up on the way up. This indicates that the stock lacks the energy to go higher in the short term and a reversal is very likely.
In the short term, the stock may fall further to take support at the $27 level.
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).
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Cisco Prices $6.25B Senior Notes, Rated A1 by Moody's
Shares of Cisco Systems, Inc. (CSCO - Free Report) have been scaling steadily higher over the last 12 months. The company’s stock provided a return of 19.2% as compared to the S&P 500’s 6.7% over the period.
The upside can be primarily attributed to the company’s strong market position, a wide product range, initiatives for growth, new investments and dividend payout. Moreover, a gradual shift towards cloud computing and increasing data flow on computer networks are further helping the stock climb higher. However, on the flip side, Chinese competition remains a matter of concern for the company.
Cisco has recently announced the pricing of senior unsecured notes aggregating $6.25 billion. These bonds have been issued in five tranches of different amounts with varying coupon rates and maturity dates. The offering is expected to close on Sep 20, 2016, subject to customary closing conditions.
Out of these notes, $500 million, carrying an interest at a floating rate equal to three-month LIBOR plus 34 basis points, will mature in 2019. Senior Notes worth $1.5 billion, $2 billion, and $750 million, with annualized interest rate of 1.400%, 1.850% and 2.200%, are due to mature in 2019, 2021 and 2023 respectively.
Additionally, another $1.5 billion worth of senior notes having an annualized interest rate of 2.500% will mature in 2026.
Management intends to use the net proceeds for general corporate purposes. These may include share repurchases, debt repayment, including the repayment of previously issued senior unsecured notes, acquisitions, investments, additions to working capital, capital expenditures, cash dividends or investments in its subsidiaries.
Moody’s Rating
Moody’s Investor Services – the credit rating agency of Moody’s Corporation – assigned an “A1” rating to the Notes. The A1 rating carries a stable outlook.
The rating was based on the Internet protocol (IP) provider’s strength in network equipment domain aided by its broad and innovative product line, expansive operations and distribution, end-to-end networking capabilities and advanced technology development abilities. Despite intensifying competition from several smaller players, these key points helped the company to sustain its market share.
In addition, the company’s strong footing in the networking space, cost efficiency and a sturdy balance sheet influenced the rating. The company has around $66 billion in cash and highly liquid investments.
The company maintains strong liquidity and has moderate financial leverage. This enables the company to return value to shareholders through regular share repurchases and dividend payouts. Moreover, it allows the company to invest aggressively to expand its core business and effectively deal with competitive challenges.
Technically Speaking
As we can see from the Daily chart of Cisco above, price has broken out of a Rising Wedge pattern to the downside, along with a Negative Divergence with the 14-period Money Flow Index, wherein price is making higher highs but the oscillator is making lower highs indicating that volume is drying up on the way up. This indicates that the stock lacks the energy to go higher in the short term and a reversal is very likely.
In the short term, the stock may fall further to take support at the $27 level.
Zacks Rank & Key Picks
CISCO SYSTEMS Price
CISCO SYSTEMS Price | CISCO SYSTEMS Quote
At present, Cisco carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology space are Lantronix, Inc. (LTRX - Free Report) , Netgear Inc. (NTGR - Free Report) and Radcom Ltd. (RDCM - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>